Concentration pro & con

Whether market concentration is the chicken or the egg, the tail or the dog, it continues to increase. That's no secret. Benefits from this concentration continue to accrue for consumers, retailers, processors and producers, too. That should be no secret, either, though a vocal minority continues to cast concentration as the bogeyman in most need of slaying, responsible for everything from producer

Whether market concentration is the chicken or the egg, the tail or the dog, it continues to increase.

That's no secret.

Benefits from this concentration continue to accrue for consumers, retailers, processors and producers, too.

That should be no secret, either, though a vocal minority continues to cast concentration as the bogeyman in most need of slaying, responsible for everything from producer attrition to higher food prices.

Trends in concentration for various levels of the food-marketing chain in major agricultural sectors,

Trends in retail food expenditures and prices,

Trends in prices farmers received for major agricultural commodities and

The views of experts on the potential effects of concentration on agricultural commodity and food prices.

According to GAO analysts, “While a few studies found some evidence of market power, it is unclear whether this market power was caused by concentration or some other factor. All of the experts we spoke with said that concentration probably did not cause the 2008 increase in commodity and food prices, which were more likely due to factors such as higher energy costs and growing global demand for grains.”

More specifically, among the summary of research findings released in August:

“Concentration generally has increased at all levels of the food marketing chain in all agricultural sectors since the 1980s. At the farm level, less than 2% of farms accounted for 50% of total sales in 2007. At the food processors' level, in general, a small number of companies accounted for a large and growing portion of sales in each of the five major agricultural sectors (beef, pork, poultry, dairy and grain)…. The share of grocery store sales held by the largest four firms more than doubled, from 16% in 1982 to 36% in 2005.

“While real annual per capita food expenditures have increased since 1982, households now spend a smaller share of disposable income on food. Total annual per capita food expenditures rose from $3,358 in 1982 to $3,888 in 2007, in constant 2008 dollars…. Meanwhile, household spending on food decreased from 13% of disposable incomes in 1982 to 10% in 2007. Since 1982, overall food prices and food prices in each of the five major agricultural sectors have increased about as much as prices for consumer goods and services overall.

“Since 1982, farmers have generally received higher monthly prices for their commodities, but these prices have increased less than food prices and inflation in the broader economy. Specifically, prices farmers received, including for beef, pork, dairy and grains, increased by 34% from January 1982 to April 2009. For the same period, food prices rose by 128%, and prices in the general economy rose 102%. Commodity prices increased significantly in 2008, reaching a high of 68% above their 1982 levels in July 2008, but have declined since then.

“The empirical economic literature has not established that concentration in the processing segment of the beef, pork or dairy sectors or the retail sector overall has adversely affected commodity or food prices. Most of the studies that we reviewed either found no evidence of market power or found efficiency effects that were larger than the market power effects of concentration.”

That last bit means that where market power was found to exist, its benefits to suppliers and customers outweighed the negative.

All of the wishing in the world will not change the reality of this well-kept non-secret at current levels of concentration.